- Headline CPI beats expectations with sharp monthly rise

- Core and services inflation both surprised to the upside

- Utility bills, road tax and regulated prices drive growth

- BoE rate cut outlook dims following April report

By Harry Daniels
LiveSquawk News
@HarryDaniels71

21 May 2025 | 10:00 GMT

LONDON – British households faced another bout of elevated living costs in April as utility bills climbed in what has become a familiar trend in recent years.

The Office for National Statistics (ONS) said on Wednesday that headline consumer prices rose 3.5% in the 12 months to April, surpassing economists’ forecasts by 0.2 percentage points and up from 3.2% in March. On the month, prices rose 1.2%, beating expectations and accelerating from March’s 0.3% increase.

Core inflation, which excludes volatile items such as food, energy, alcohol and tobacco, rose 3.8% y/y, also above expectations and up from 3.4% in March.

The Bank of England’s latest Monetary Policy Report, published in May, projects that headline inflation will temporarily rise to 3.5% in the third quarter, driven largely by household energy costs and, to a lesser extent, regulated prices.

A breakdown of the data showed that services bore the brunt of the increase. “Significant increases in household bills caused inflation to climb steeply,” said Grant Fitzner, ONS Acting Director General. “Gas and electricity bills rose this month, compared with sharp falls at the same time last year, due to changes in the Ofgem energy price cap.

“Water and sewerage bills also rose strongly this year, as did vehicle excise duty, all of which pushed the headline rate to its highest level since early 2023.”

Falls in motor fuel and clothing prices helped partially offset the gains. Retailers reported heavy discounting on children’s garments and women’s footwear.

The sharp rise in prices may complicate arguments from the more dovish members of the Bank of England’s Monetary Policy Committee (MPC), two of whom recently backed a 50-basis-point cut, compared with the 25 bps cut that was delivered.

Analysts noted that the rise in April inflation had been well signposted and should not have come as a surprise. However, James Smith, developed markets economist at ING, highlighted the jump in services inflation.

“Crucially for the BoE, services inflation surged from 4.7% to 5.4% in April,” Smith said. “This is the part of the inflation basket the BoE cares most about – and this was a much larger increase than either we or the Bank had expected.”

The rise followed Ofgem’s hike to the energy price cap, which raised annual bills by £111 to £1,849 for the average dual-fuel household paying by direct debit.

Transport costs also contributed to the overall rise in prices.

“When you drill into it, though, the rise doesn’t look nearly as problematic as it might at first glance,” Smith added. “We calculate that half of the increase was down to the rise in road tax – the contribution from ‘personal transport’ services rose by 0.5 percentage points. That will stick around for the next 12 months before falling out of the annual comparison.”

While MPC members are likely to discount some of the temporary drivers, underlying services inflation remains a concern. Huw Pill, the BoE chief economist, recently emphasised that point.

“Structural changes in price and wage-setting behaviour have increased the intrinsic persistence of the UK inflation process,” Pill said. “The quarterly pace of 25bp rate cuts seen since last summer is too rapid given the inflation outlook.”

Allan Monks, economist at JP Morgan, added: “Underlying services inflation remains strong, even if exaggerated by fiscal changes. The surprise will reinforce the BoE’s hawkish bias. The door to a June cut appears shut, and the likelihood of an August move – still our base case – has diminished.”